You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App
Join our mailing list to receive top business news every weekday morning.

Outcomes-based investment is the future

Blending a mix of active and passive investment styles.
New Road Capital is targeting its message at financial advisors looking to retain the client relationship while outsourcing the investment management function. Image: Shutterstock

This may seem an odd time to launch a new investment management company, but New Road Capital has done just that – right in the teeth of the Covid-19 lockdown.

“It happened that our Funds of Funds were launched in April, in the middle of the lockdown, but we think the timing is perfect,” says New Road Capital’s portfolio manager Paul Fouché. “There is a radical shift happening in the world of investment, and the lockdown will only accelerate this. We are definitely at the forefront of that shift.”

The shift he is talking about is the rise of discretionary fund managers (DFMs) as a force in investment, a move accelerated by regulatory changes such as Retail Distribution Review (RDR) and Treating Customers Fairly (TCF) – a set of phased regulations designed to ensure the financial sector delivers clearly articulated and fair outcomes for financial customers.

Into this milieu, New Road Capital intends to stamp its mark. It is an independent investment management company, specialising in Fund of Fund and DFM services to assist financial advisors in offering their clients effective goal-based investment portfolios.

Opportunity

The DFM industry has about 9% of assets under management in SA, and about 80 active players (of which only four are substantial). But there are questions about the independence of the bigger players, and that’s why Fouché sees an opportunity for new and disruptive entrants.

DFMs in the UK and US account for more than half the advised assets under management, as regulators have separated financial advice from investment. This trend has squeezed many financial advisors out of the market, as they struggle to offer cost-effective services to clients at a time of increased regulatory obligations. Under the RDR regulations, advisors earn fees rather than commissions on product sales – an innovation intended to improve the quality of advice and ram home the importance of independence.

New Road’s business model allows financial advisors to retain control of the client relationship by establishing their financial goals and risk appetites.

The portfolio construction is handled by New Road, which in turn allocates funds to managers specialising in stocks, bonds and other asset classes. This adds value to the financial advisor’s practice and investment process, and the client benefits from a clearly defined investment outcome.

Blended approach

What distinguishes this business approach from others is the focus on outcomes-based investment, blending both passive and active investment styles (which helps defang the never-ending debate about which approach is better). In the Covid-19 investment climate, investors are looking to ensure that their investment objectives are still met, and are therefore more concerned about reaching their targeted returns rather than taking an unnecessary risk trying to blow the lights out.

“We’re an advisor-facing firm and see our role as making it easier for advisors to achieve their clients’ investment goals,” says New Road Capital director Garth Nash. “Investment is becoming more complex, with so many choices and options now available that investors and financial advisors can easily get overwhelmed. We take that headache away from them.”

New Road Capital currently offers four funds targeting different outcomes:

  1. New Road BCI Managed Fund of Funds (Target: CPI+5%)
  2. New Road BCI Moderate Fund of Funds (Target: CPI+4%)
  3. New Road BCI Stable Fund of Funds (Target: CPI+3%)
  4. New Road BCI Income Fund of Funds (Target: CPI+1.5%)

Though it is brand new on the market, New Road already has in excess of R675 million under management and is targeting its message at financial advisors looking to retain the client relationship while outsourcing the investment management function.

The company founders, Fouché and Nash, are both in their thirties, but with more than two decades in financial services behind them.

New direction

“We started in the financial planning space, providing model portfolios, as at that time only a few advisors had a consistent investment strategy aligned to their advice process. In some instances, the investment recommendations were susceptible to whatever investment trend was popular at the time and were often not updated when these trends changed. This was not in the best interests of the client and it compromised the position of the advisor. We saw it was time for a change in direction.”

The demand going forward is for greater due diligence in how portfolios are put together, which has prompted a move to outsource this function. Crucially, New Road prefers that clients invest in their funds via a financial advisor, as they strongly believe in the value an advisor adds when it comes to the establishment and updating of a client’s financial goals.

The investment house of the future will be required to adopt a collaborative approach, where the advisor is involved in the process and the client is fully and honestly informed of the various investment options and styles.

At the back end of this process lie a plethora of quantitative and qualitative tools to build portfolios that achieve the right balance between risk and reward.

New Road Capital is an authorised financial services provider (FSP No 50488).

Brought to you by New Road Capital.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   3

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

OBI is hardly new in SA. Been around for at least 20 years.

Does OBI have a OBF (outbased based fees).

Dream on. The reality is that most people don’t make it because they don’t save enough. Some don’t save enough because they can’t. There are too few people carrying too many who still have to use what little income is left after paying taxes and subsidising the masses for everything. This is a communist system and I don’t think any fund is going to make a difference. The country is finished economically.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: